This slide contain content for students of Economics of Class XI CBSE Board.

1. Production Function &
Return To a Factor
Production Function:
Relationship between Physical Input and
physical output is referred to as
Production Function
The general form of production Function
is
Qx=f(L : K)
Where Qx= Output
L=Labour(Ijnput)
K=Capital (Input)
Factors of Production:
Production Function & Return To Scale

2. Factors of Production

5. The Concept of Total Product
Marginal Product and Average Product
Total Product:
•TP is the sum total of output of
each unit of the variable factor
used in the process of
production.
•It is also called total return of the
variable factor.
A producer with some fixed factor
uses 1 to 6 units of variable
factor (labour) and resultant
output is 10,12,15,12,10,8 units
of commodity.
TP = 10+12+15+12+10+8

7. Marginal Product:
• MP refers to change in TP when one
more unit of the variable factor is used
where as fixed factors remains
constant.
MP=Change in Output/Change in input
= Q / L
Since Fixed Factors are constant and
L =1
Also Q= TPn -TPn-1
MP or MPnth =TPn -TPn-1

8. Marginal Product:
The Marginal Product of an input shows the increase in total
output from a one unit increase in the amount of the variable
input

9. Average Product
The Fixed Factors being constant
average product of an input is per unit
product of variable factor.
AP = Total Product/Unit of Variable
Factor
= TP/L

11. Relationship Between MP and AP
AP & MP Graphical Example
Points to Note:
• When AP is rising it is
always less than MP
and when it is falling it is
always greater than MP.
•MP = AP when AP is at
its max.
•MP = 0 when TP reaches
its max and
•AP = 0 when TP = 0 Law of
Diminishing Returns

12. Law of Diminishing Returns
 The law of diminishing returns states
that as a firm uses more of a variable
input without changing the quantity of
fixed inputs, the MP of the variable
input will eventually decline.
 Why?
• Because the productivity of
additional units of the variable input
(Labor) is limited by the lack of the
fixed input (machines). This is the
reason for the shapes of the TP, AP
& MP curve.

13. Consider a factory with 10 jean machines.
Suppose one machine can be used by one
worker. The first ten workers can each have a
machine. The next few can carry raw
materials for those on the machines.
However eventually you get to a point where
additional workers are just standing around
getting in each others way. Eventually the MP
of each additional hour worked will decline
due to the bottleneck in the number of
machines.
• The law of diminishing MP is the reason
• For example:

15. The relationship between TP and
MP MP tends to rise till OL units of
Labour are used (optimum). The
corresponding point E on the MP
curve. This is the situation of
increasing returns to a factor.
 When MP is increasing TP increase
with increasing rate. This occurs till
point B on TP curve. This
corresponds to the situation of
increasing return to Factor.
 Beyond OL MP tends to decline.
Corresponding to it TP increases
with decreasing rate. This occurs
between E and F point on MP curve
and B and C point at TP curve. This
is the situation of diminishing return
to a factor.
 When employment of labour
exceeds OL units, MP becomes
negative. Accordingly, TP starts
declining. It is the situation of
Diminishing returns to a factor. It
occurs beyond point C on TP curve
and beyond point F on PM curve.

16. Causes of Increasing Returns to factor:
 Fuller Utilisation of the Fixed Factors.
 Increased efficiency of the variable Factors.
 Better coordination between the Factors
Causes of Diminishing Returns to a Factor
 Fixity of the Factor(s)
 Imperfect Factor Substitutability.
 Poor coordination between the Factors.
Assumptions of the Law of Variable
Proportions:
 Ratio in which factors of production are combined
can be changed.
 Units of the variable factor are homogeneous
 State of Technology does not change.